Banks Target The Wealthy To The Detriment Of Minorities And The Poor

According to a report by the National Community Reinvestment Coalition (NCRC,) banks are predominantly concentrated in wealthy neighborhoods, leaving poor and minority communities without access to basic financial tools such as checking and savings accounts. The NCRC compared bank locations to minority and income data provided by the census. The findings suggest that banks are redlining with devastating consequences.

This report shows in 24 out of 25 MSAs [Metropolitan Statistical Areas], urban areas that have dense populations have fewer bank branches — therefore fewer mainstream banking opportunities — than the less populated suburbs. Without the ability to build relationships with the regulated banking community, working class and minority neighborhoods are more likely to use “fringe” services, such as payday lenders and pawnshops, for small loans. They are also more likely to have their home loans originated with mortgage brokers and subprime lenders, which often led to foreclosures and unmanageable monthly payments.

Houston, Philadelphia, and Los Angeles showed the greatest disparities, compared to the relatively equitable distribution of banks in San Francisco, Seattle, and Boston.

The NCRC recommends that banks view poor and minority neighborhoods as an “untapped market area ripe for expansion.” In case that doesn’t work, the report suggests regulators revamp their application of the Community Reinvestment Act, the landmark anti-redlining legislation passed back in 1977. — CAREY GREENBERG-BERGER

Are Banks on the Map? (Press Release) [PR Newswire via Chicago Tribune]
PREVIOUSLY: Do PayDay Loan Centers Target The Poor?
Do PayDay Loan Centers Target Minorities?

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  1. yahonza says:

    Banks are in the business of dealing with other people’s money…so why wouldn’t they tend to flourish in areas where people have more of it and languish in areas where people have less?

    In fact, I will bet it isn’t just banks and that there is more of every kind of business in areas where people have more money.

  2. gershinator says:

    Isn’t this obvious?

    There are certain businesses that flourish in areas with lots of rich people, and businesses that flourish in areas with lots of poor people.

    Banks happen to flourish in an area with rich people. “Businesses” such as “drug” stores, “gun” stores, soup kitchens, and the Salvation Army flourish in areas with lots of poor people.

  3. Bulldog9908 says:

    Wait a minute…banks locate branches where the money is?

    That is a truly underwhelming revelation. I’m surprised anyone would spend any money on a study to determine the obvious.

    I understand ensuring banks don’t discriminate based on race or location of home/business, but asking branches to be located in areas that don’t make any money for the bank is taking it too far. Banks are businesses, not community service organizations. Perhaps the money spent on this useless study could have been spent as seed money for a credit union to be located in lower income areas.

  4. j.a.s.o.n says:

    Coming soon to a study near you:

    “Dairy Processing Plants Target The Dairy Farming Industry, to the Detriment of Urban Dwellers”, “Setting the Record Straight: A Majority of Financial Advisors Live Outside of Cheyenne, Wyoming” and the shocking “More Ads for Feminine Products in Women’s Magazines than in Men’s Magazines”.

  5. Skeptic says:

    Ahh, illegal “redlining.”

    Now, some banks *coughbankofamerica* try to avoid being charged with redlining by staying out of entire states, poor states. BofA brags that it is a “coast to coast” bank but they are not a 50 state bank. They have very deliberately decided to only serve the most profitable states. Try finding a BofA branch in Montana… And, no, the lack of branches isn’t a lack of expansion it is a deliberate plan that the bank brags about to shareholders.

  6. yahonza says:

    Re: redlining: why WOULDN’T banks want to avoid a redlining charge? If a State tries to vigorously enforce redlining, wouldn’t you have second thoughts about locating your bank there?

    Also: “They have very deliberately decided to only serve the most profitable state”

    Its off topic, but again, why wouldn’t a bank want to concentrate on the most profitable states? They aren’t charities, you know.

  7. Dustbunny says:

    Yep, this sounds like another “Duh” report. Stop the presses: businesses go where the money is! How dare they!

  8. Bourque77 says:

    So the banks dont like poor neighborhoods and the people that live there, big suprise. Hell BofA actually paid the city where I work to relocate a bus station because they were going to put it near their downtown building. And you know what? I would do the same damn thing if I were them. Rich people have money poor people dont its common sense they’d go there. You dont see any ferrari dealerships in poor neighborhoods either, is that in the study?

  9. Sudonum says:

    @Skeptic: I can relate to that. Being from CA I had a BofA account for years. Was very handy when I was working on the road. Pre-merger with Nations. Nations had at least one branch in Louisiana, probably more. When the merger was announced, I thought “cool, finally a Bof A in LA”. Nope, BofA closed all branches here. There are a few BofA ATM’s in the state for withdrwal only.

  10. j.a.s.o.n says:

    @Skeptic: I thought redlining laws only force banks to use the same lending standards in all markets? Does the Community Reinvestment Act say more than that? (The article is vague on exactly what the Act says.)

    “And, no, the lack of branches isn’t a lack of expansion it is a deliberate plan that the bank brags about to shareholders.”

    Link?

  11. roamer1 says:

    It isn’t solely about money; relatively poor rural towns, at least here in the Southeast, are often awash in banks, sometimes ridiculously so. Many smaller towns around here have branches of multiple big banks like Wachovia, Regions, BB&T, etc. in addition to small community banks.

    It isn’t just banks, of course…large businesses in general tend to shy away from minority communities. Even affluent “areas of color” such as Prince Georges County, MD and the southern half of DeKalb County, GA tend to be rather short on chain retailers (aside from “dollar” stores), non-fast-food chain restaurants, regular supermarkets, banks, etc. (South DeKalb is starting to change somewhat thanks to the Mall at Stonecrest.)

    Skeptic: BofA seems to be like Cingular in denying the existence of the Rockies; they have no presence in Denver, of all places, other than a few scattered ATMs!

  12. Hexum2600 says:

    @Skeptic: Merrr? Lots of companies have no presence in underpopulated Montana. Best Buy?

  13. raybury says:

    All branches are not created equal, nor operated as such. Three to four staffers are enough for me to always find quick service at a Wachovia in a neighborhood booming with new construction near me, but ten to twelve at the staffers at a location a few miles away still results in a wait in line. Perhaps the poor folks should try going into the banks that already are nearby — an opportunity for microcredit to cover balance requirements, or just a good time for more banks to have really-free checking — and they’ll soon find more branches opening. Government involvement does not need to expand!

  14. kerry says:

    I’ve noticed that a lot of the bank branches in the less affluent parts of Chicago are the ones at the supermarket. this makes good business sense to me, as the customers like having the bank in a convenient location, and a single branch can serve a large community. I don’t think anybody is arguing that banks shouldn’t go where the money is, but the banks do lose business by avoiding certain communities, to the detriment of the people who live there and don’t have the same banking privileges as everyone else. Now if the supermarkets would stop leaving lower income neighborhoods I’d be really happy. I live in a “supermarket desert,” an area where there are many, many more fast food places than grocery stores. There is not a supermarket within 1 mile of my house in any direction. All it does is encourage people with limited transit options to buy their kids junk food to save time and effort. Awesome! They can use the money from the payday lender on the corner to pay for the junk food, while they’re at it.
    Anyway, I’ve also noticed more credit unions and independent banks in the gaps where chain banks don’t seem willing to operate, so good on them for thriving where they’re needed.

  15. Bobino says:

    And if the banks *did* move in to the poor neighborhoods in any strength, they’d be accused of ‘predatory’ lending and ‘racist’ policies when they charged people with poor credit histories high interest rates.

    This might actually account for the some of the willingness of banks to operate in poor rural areas compared to their willingness to operate in relatively well-off areas with a lot of ‘minority’ residents. When you charge a hillbilly high interest rates, you’re just accused of being predatory. When you charge a black person high interest rates, you’re accused of being predatory *and* racist.

    (Actually, my guess would be that the huge numbers of banks in some of these small towns are about serving the large number of farmers etc. who live nearby; they may not be exactly wealthy, but they do move a lot of money through the system.)

  16. CumaeanSibyl says:

    @roamer1: Thanks for pointing out that it’s not just about the money — it never is, and it’s naive to believe otherwise.

    Businesses are attracted to affluence, of course, but also to “good neighborhoods” where they feel they’ll be safe from theft and vandalism. Oh, sure, there are white communities with high crime rates and low incomes, but people still believe that whites always have more money and commit fewer crimes than minorities, so they’ll make their choice based on prejudice rather than actual circumstance.

  17. Ico Jones says:

    Hmmmm — the same people complaining that banks are avoiding the poor masses are the ones that complained so loudly about Wal-Mart getting a commercial banking license. And who would Wal-Mart be serving — the poorest of the rural and suburban poor. Hypocrisy, thy name is Wal-Mart haters!

  18. @yahonza:

    Au contraire: http://www.self-help.org/

    Self Help has the lowest mortgage default rate in the state of North Carolina (or did when I lived there) and they lend to the “least-desirable” mortgagees.

    Ditto their small business loans.

    There are a couple of banks (not CUs) in Chicago with a similar strategy, that do similarly well.

  19. Owen Says says:

    Now, I know this might be a study on the whole country itself but looking at the map that was displayed.. believing it is New York City, is it really the banks fault if the people don’t understand the concept of riding the subway or bus to a bank in Manhattan or somewhere else that has a bank?

  20. Snakeophelia says:

    On a similar topic…I live in a neighborhood right outside a major city, and that neighborhood is trying, after years of being a white blue-collor and now a multicultural blue-collar neighborhood, to reinvent itself as a more artsy and upscale (but still small and unpretentious) neighborhood. Interestingly enough, the one business on the block that seems to cause the most worry to those hoping to upscale the neighborhood is not the Dollar General nor the charity thrift store nor the ethnic market, but the check cashing/payday lending place.

    It seems you can go for an artsy vibe with stores where poor people shop or buy their goat meat and other exotics, but not with a check cashing store. Cheap or odd stores suggest poor customers, but payday lending places suggest customers who are going to stay poor.

  21. yahonza says:

    I think there is a difference between banks and credit unions, and I think CUs probably thrive in areas where banks don’t, as they specialize in providing services for people with lower incomes. I’m no bank/CU expert, but why doesn’t self help move into the neighborhoods mentioned in the article?

  22. Rajio says:

    This just in: Water is wet!

  23. HooFoot says:

    Why is it the bank’s responsibility to build branches in unprofitable neighborhoods?

  24. aiken says:

    I just hope that once these noble crusaders get the banks straightened out, they move on and ensure an even distribution of Ferrari dealerships. Those places are even more undemocratically allocated than banks are.

    And while we’re blithely ignoring basic economics, is anyone looking into the scandalous way that the rich are underserved by paycheck loan companies and 99 cent stores?

  25. Wdeal says:

    I just love it when lefties think so much of themselves when they catch a business in the “act of profitability” !! Those darn capitalists — if not for them we could all live in a leftist-Utopia / socialist country with 12% unemployment, 75% nominal tax rates, a competitive-killing regulatory environment & poor productivity.

    Odd though how quiet leftists are about “excessive” salaries of Hollywood celebrities & executives, the 40% take a plaintiff’s attorney receives on a poor victim’s judgment or the monies that accrue to liberal tech billionaires (google, microsoft et al).

    Hey where do LA celebrities live…South Central LA & Compton??? No they live in Beverly Hills, Malibu, Santa Monica, & Bel Air — you know, WHERE THE BANKS ARE !!

  26. ReccaSquirrel says:

    This reeks heavily of correlation does not equal causation. Fair Lending laws require banks to not only operate without discrimination, but require to prove they do so. Failure to do this can result in severe limitations. For this reason, I doubt any bank would intentionally open branches to be inconvenient to the poor, especially when you consider that overdraft fees are one of the biggest money making tools a bank has. I find the attribution of motivation disturbing.

    The reason behind this could be far more widespread than indicated. Poor tend to live in more crime filled areas which would be a deterrent. Then there is the concept of the chicken and the egg. Are the wealthier areas wealthier because they have more banks available for easy business and personal access?

    There should also be consideration to the banks as a business model. Banks do not make most of their money off of small personal accounts. They make their money on investors, equities, and mortgages. Saturating a poor economy area with numerous financial institutes is inevitably going to prove unprofitable and force some banks to close as it draws in a lack of business. And yes, banks do go out of business. There is an entire department of the FDIC that handles the previous assets of banks that have collapsed to make sure the insured customers get to keep their money they had had in it.

    I’m not saying this study is wrong, but I don’t buy the attributed motivation at all.

  27. EtherealStrife says:

    @yahonza: Credit unions are just non-profit banks. If you *can* get into one, then do so. My neighborhood is fairly affluent, and we have OCTFCU (the local credit union) atms at every corner and several walk-in banking locations. While the number of WAMUs exceeds that of OCTFCUs, it’s mainly due to the limited membership that credit unions offer (restricted to teachers and university students, in this particular case).

    Credit unions are popular wherever they exist.

    The reason why Self Help CU can’t be everywhere is because of who it’s targeting. CUs are owned by the members, and if your membership is high-risk and low-income, your expansion options are fairly limited.

  28. @yahonza: Because they’re not chartered in New York, Illinois, etc. :)

    They WERE in all the poorest parts of Raleigh-Durham and often the only financial services company available. (They were capitalized with $17 in 1980 raised by a bake sale out of the back of a VW by idealistic law students. In case you wondered.)

    The Chicago Trib did a story last year, I think, about a small bank that was thriving in poor & minority areas of the city where other banks refused to even consider opening. They recruited aggressively for talented, multi-lingual graduates and got them, sometimes at lower salaries than the big boys were willing to pay the same grads. I wish I could remember the name of the bank.

    Self-Help makes the point that financial education is a HUGE part of their job. Someone who gets a mortgage from a traditional bank probably knows a lot about mortgages or can afford not to know. Someone who gets a mortgage from Self-Help has probably never engaged with that kind of financial service before, and Self-Help goes through it step by tiny step until they’re positive the borrower understand. Only THEN do they lend. (Ditto for small business loans, etc.)

    They not only have (or had when I was there) the lowest foreclosure rate in the state, but they have the lowest foreclosure rate AMONG DESIREABLE BUYERS because they ensure even their upper middle class clients understand the terms of the mortgage. And because they have such low default rates, the extra time it costs to educate clients is more than made up in increased “profits.”

    Other banks in the region were starting to sit up and take notice when a not-for-profit credit union was beating the PANTS of their earnings.

    Self-Help invests much of its holdings in the community, buying and renovating blighted properties as office buildings (I interned in one they owned and renovated), redeveloping urban slums, etc. And they’re STILL financially ridiculously healthy. $17.00 in 1980 to $4.5 billion in 2007 is a fairly definitively statement that financial institutions can do JUST FINE lending to lower-income individuals and reinvesting in blighted areas of the community.

    Self-Help does operate a huge clearinghouse of information for people who want to start similar operations in other communities. I *believe* they also maintain some staff that basically consults and teaches seminars on these issues to CUs, banks, and startups, but I’m not positive.

  29. EtherealStrife says:

    Hmm not sure why it cut me off. Anyway:
    CUs are not just for low-income. They’re owned by the membership, therefore Self Help CU is going to have a harder time expanding than credit unions that target medium and high income (even with assistance from its parent organization, Self Help).

  30. @EtherealStrife: Self-Help was one of the larger CUs in the state. (Only the state employees’ CU was larger, I think.)

    And they were smart — they pitched to students and professors at the local universities (and Raleigh-Durham-Chapel Hill is ROLLING in them) because they knew that’s where they’d find idealists willing to buy in early to a credit union aggressively pursuing poor clients. By the time I was there, they’d been in business 20 years and half of everyone we knew banked there. Even people who didn’t often went there for their mortgages.

  31. YlimE08 says:

    If I were in charge of deciding where to build a bank, would I build it in East St. Louis or one of the nice St. Louis suburbs? You have to look at the safety of their customers and employees too. I sure as hell wouldn’t want to work or do business at a bank in a sketchy neighborhood!

    The way I see it, banks are a business just like any other. And they want to locate their business in areas where they will flourish.

    I live in a small midwestern town. We have more banks than we can count and NONE of them are in the “bad” part of town.

  32. Zach Everson says:

    Um…last I checked banks are responsible to their shareholders–not potential customers. If it made financial sense for a bank to open a branch in a poor area, it would. If banks start opening branches in areas where there isn’t a good business case to do so, they would be acting irresponsibly.

  33. silenuswise says:

    “..last I checked banks are responsible to their shareholders–not potential customers”

    Exactly. And precisely why commercial banks suck ass. Just one more reason why I have been a happy credit union member for 20 years and running.

  34. mac-phisto says:

    @Ico Jones: “This report shows in 24 out of 25 MSAs [Metropolitan Statistical Areas], urban areas that have dense populations have fewer bank branches — therefore fewer mainstream banking opportunities — than the less populated suburbs.”

    wal-mart doesn’t need banks. metro areas do.

    i think there’s some things this report are neglecting to take into account. like, in philly almost all the banks i’ve seen are concentrated in the commercial district. i would imagine zoning has something to do with that. if there’s little or no commercial zoning next to high-density residential, that’s not the bank’s fault.

    & on the other hand, the CRA requires banks to seek out low-income investment. credit unions do not have the same requirement, but many do so voluntarily.

  35. FLConsumer says:

    @yahonza: I would tend to agree that credit unions aren’t quite set up to handle clients with accounts & transactions. Things like low daily ATM withdrawl limits, 48 hour notices need prior to large withdrawls, weekly withdrawl limits, fees for wire transfers, etc. are not conducive to the way I handle my finances.

    The larger banks have “private banking” or “wealth management” divisions for their higher-end clients which are geared to handle the complex situations which arise with such level of wealth.

    The one fact I’ve not seen mentioned is that people in lower income levels don’t trust banks/credit unions/organizations and won’t usually use them. This is besides the point that many of the lower income people DON’T have money to put aside into a bank.

    Where do you find the utility bill payment centers? In lower income areas — these people don’t have checking accounts and pay for everything in the cash they just received from work/gov’t/etc. I’ve never seen one in any of the middle class or upper class areas of town. Banks saturating the lower income parts of town like they do the upper income parts is just flat out dumb. It’s like selling beach chairs and air conditioners to eskimos.

  36. The Bigger Unit says:

    Hold on…I thought poor people preferred using Payday Loan offices anyway?

  37. BillyMumphry says:

    I heard Ferrari targeted customers who could afford their vehicles. Discriminatory bastards!

  38. Ico Jones says:

    mac-phisto — Outside of the Northeast, WMT does serve urban/metropolitan areas. I believe the company claims that 90% of the adult population shops in a WMT at some point in any given year. If you assume that most NYC residents don’t, that’s a pretty high hit ratio among the rest of the country.

  39. Greeper says:

    What? Banks interested in money???? Say it ain’t so! Coming soon “Realtor’s interested in Development,” “Schools open near children,” and “Ice Rinks Target cold climates.”

  40. Prince of Zemunda says:

    I think banks can only have a certain percentage of the estimated capital in accounts. They can’t open new bank branches but they can buy out a comapany and attain their accounts. I learned this from an interview at B of A Merchant Services in Kentucky where there are no B of A branches. Therefore B of A will never have bank branches in all states.

  41. mac-phisto says:

    @Ico Jones: listen, man i was just responding to your post: “And who would Wal-Mart be serving — the poorest of the rural and suburban poor.” the report was about urban areas needing branches, not rural & suburban communities.

    also, i don’t think anyone has a problem with banks in wal-mart…many wal-mart’s have teamed up with local banks & credit unions to offer branch services to their consumers. the problem is allowing a retail giant to own a financial institution. they’re not my rules. banks are supposed to exist outside of commercial enterprise so they can maintain a fiduciary relationship without conflicting interest. the fact that some companies have found a loophole to violate this idea does not make it a rule that everyone should be allowed to open a bank, it just means the rules need to be tightened. & they are working on it. i doubt that you will see any more successful ILC charters anytime soon.

  42. noneother says:

    so … they put places that handle money in affluent areas? madness. sheer and absolute.

    seriously though, this report doesn’t take ATMs into account. also, where’s the outcry for PayDay centers in affluent areas? chances are, unfortunately, that if you are in a low income bracket, you’re going to need that check pretty quickly. if you need to put the money into a savings/checking account, an ATM is just as useful as a brick and mortar branch.

    also, i doubt that banks are the missing link in the perpetual chain of disenfranchisement for the poor. certainly a long-term factor, but i don’t think putting a WaMu in the poorest of areas is going to transform the neighborhood.

  43. Mogbert says:

    Dang, all the good sarcasm was already taken. Here is mine anyway…
    “Banks interested in people with money!
    Repair shops advertising to people with cars!
    Are schools targeting children?
    Fish may like water, new study says.
    The Wii may be interesting to an older demographic.” (Actually, this news story was just run in the New York Times)

    “News at 11!”

    Tell me that people didn’t spend money for this report.
    OOOOoooo! I got one!
    “National Community Reinvestment Coalition interested in obvious studies!”